Federal Court in Florida Issues Another Limited Preliminary Injunction Against the FTC’s Non-Compete Rule

UPDATE: On August 20, 2024, the U.S. District Court for the Northern District of Texas set aside the FTC’s final non-compete rule and ordered that the rule shall not be enforced or otherwise take effect on September 4, 2024. Although appellate activity is expected, the decision (for now) means that the FTC is prohibited from enforcing its rule on a nationwide basis.  This also means that employers will not be required to void employees’ existing non-competes covered by the rule or send written notices to their workforce by September 4 regarding the status of their non-competes. 

On August 14th, a second federal judge, this time out of the Middle District of Florida, temporarily blocked the FTC’s rule banning non-compete agreements, but only as to the named plaintiff in that case.  In Properties of the Villages, Inc. v. Federal Trade Commission, U.S. District Judge Timothy Corrigan noted that the FTC’s rule implicated the “major questions doctrine,” – i.e., the judicial requirement that a federal administrative agency “point to clear congressional authorization for the power it claims” when it “claims to have the power to issue rules of extraordinary economic and political significance.”  The court found that the doctrine applies where, as here, the FTC’s rule significantly impacts the American economy, regulates an area that was previously under the domain of state law, and significantly expands the agency’s regulatory authority.  The plaintiff in this Florida case did not seek a nationwide injunction that would have stopped the ruling from applying to all employers.

This is the second federal court that has issued a limited preliminary injunction with respect to the FTC rule – the first being a Texas federal court which issued a limited preliminary injunction in early July as to several plaintiffs in the Ryan litigation (we covered that decision here).  Notably, the reasoning between the two decisions and the basis for each injunction differ significantly.  The judge in the Texas-based Ryan case found the FTC’s authority to be significantly more restricted, holding that the FTC only has the authority to adopt regulations about “‘agency organization procedure or practice” as opposed to “substantive rules.”  The Florida court did not consider that argument, focusing instead on the major questions doctrine. 

A third federal court in Pennsylvania reached a wholly different conclusion in the ATS Tree Services case in late July.  That Pennsylvania court declined to stop the FTC’s final noncompete rule from going into effect and found that the FTC did not overstep by issuing its final noncompete rule. 

Given the developing scatterplot of judicial rulings to date, employers are still waiting for clarity ahead of the FTC rule’s looming September 4th effective date.  All eyes remain on Texas, where the judge in the Ryan litigation indicated that she would issue a final decision on the merits on or before August 30th (ahead of the rule’s effective date).  You can read more about the FTC rule here, as well as its potential impact of corporate transactions here.

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